Over the last few years, we have all seen how climate change has become a crucial topic among the different stakeholder groups, especially since COP26 in November 2021, when countries updated their commitments to achieve the Paris Agreement goals. Since then, governments, regulators, companies, asset managers, asset owners, etc. have each undertaken actions to progress on the mitigation of climate change impact supported by the launch of different projects and initiatives.
However, there is still a long journey to achieve a net zero carbon economy in which companies play an important role. Thus, during recent years we have noticed that many companies have engaged with their shareholders not only on remuneration but also on climate change. Depending on the effectiveness of these engagements we could see different approaches taken by companies and investors at AGMs. One such result we have seen is climate change being part of the AGM agenda in the form of resolutions proposed by either management or investors. As such, to know the outcomes of these engagements on climate change, part of our research [1] has focused on analysing the trend of climate-related proposals during the last three UK AGM seasons at FTSE companies (January to May). We have chosen this period as the main AGM proxy season.
Looking at this period over the last three years, the results show that there have been 29 climate-related proposals, all of them at FTSE 100 companies. Further, of these 29 proposals, more than half have been proposed by management. Of note, all management resolutions during the period analysed passed with votes ranging between 69.7% and 100%. In contrast, all shareholder resolutions proposed during this period have failed, with the highest level of shareholder support (30.5%) being received for the resolution proposed by Follow This at Shell’s 2021 AGM.
We note that the main activist investor groups leading these types of resolutions during this period are ‘Follow This‘ and ‘Market Forces’. Follow This generally request energy companies such as Shell and BP to accelerate their ambition to reduce greenhouse gas emissions so that their targets are more aligned with the Paris Agreement. On their part, Market Forces have targeted banks, such as Barclays and Standard Chartered, asking them to set a strategy to reduce their fossil fuel exposure and report annually on progress under that strategy.
In line with the approach taken by these activist shareholders, it is unsurprising to see that both the oil, gas and coal and the banking sectors have been the ones with more climate-related resolutions included in their AGM agendas.
Figure 1. Climate-related proposals by sector January to May 2021-2023
Looking at the wider picture, the majority of the climate-related resolutions have been proposed within the financials industry, including banks, investment banking and brokerage services, life insurance, finance and credit services, followed by the energy industry. As observed in Figure 2, except for the consumer staples industry, the rest of the industries have been including climate change in their AGM agendas throughout the three-year period under review. These results make sense if we consider that financials, energy and materials are classified by the TCFD as some of the industries potentially most affected by climate change. And therefore, it could be expected that these sectors are required and expected to take more action around climate change than some other sectors.
Figure 2. Climate-related proposals by industry January to May 2021-2023
In fact, 12 out of 29 climate-related resolutions during the period reviewed were proposed within the financials industry. Likewise, 10 of the total climate-related proposals were put to a shareholder vote at AGMs of energy companies. Here, we have observed how investors have raised their concerns around the oil, gas and coal companies given that the CDP ‘Carbon Majors’ research found that ‘100 active fossil fuel producers are linked to 71% of industrial greenhouse gas emissions since 1988’. As such, we observed that six of the 10 climate-related resolutions in energy companies were proposed by shareholders, unlike the rest of the industries where this type of resolution has mainly been proposed by management.
It seems that since the launch of the Say on Climate initiative in 2020 led by the hedge fund activist investor Chris Hohn’s CIFF, we have seen an increase in climate-related proposals. Thus, we started to see some movement in 2021 with a significant increase of this type of proposal in 2022. Referring to the period under review, 14 of the 29 resolutions took place in 2022, which was an increase of 75% compared to 2021. The momentum gained in 2022 may well be related to the new commitments set at the COP26 in November 2021 around climate change.
Figure 3. Climate-related proposals trend
However, as reflected in Figure 3, climate-related resolutions have been reduced by half during the current AGM season compared to 2022. One of the potential reasons behind this drop of climate-related proposals is the fact that while there are companies that seek shareholder approval on their Climate Transition Plans or climate-related disclosures every year, some others do it on a triennial basis. This means that we may see a peak of climate-related resolutions again in 2024/2025.
On the other hand, the reduction of this type of proposal in 2023 could be the result of the recent update of the FCA Listing Rules. For reporting periods on or after 1 April 2022, LR 9.8.6 R (8) and LR 14.3.27 R requires UK listed companies to state whether it is reporting in line with the Taskforce for Climate Related Financial Disclosures (‘TCFD’)’s recommended disclosures. If the Company has not made a standalone TCFD Statement, the Listing Rule requires companies to explain why and set out any steps they are taking or plan to take to comply with these disclosures in the future. Accordingly, we could deduce that given the progress made by companies on climate-related disclosures in their annual reports, neither they nor their investors consider the need for seeking further shareholder approval around climate-related matters at AGMs.
It will be interesting to see the direction climate-related resolutions take in the following years, especially after the updated FCA Listing Rules start to cover all UK listed companies. We all know that climate change is a large topic about which we continue to learn and thanks to all of the guidance and initiatives available, progress is being made. Further, we look forward to seeing the outcomes and new launches resulting from COP28, which will take place in November in Dubai.
[1] The study covers all FTSE indexes available in Insightia from 2021 to 2023 (January - May period).
Industry and sector have been categorised according to the LSE classification. (go top)